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Matt McLennan has always played the odds. At 17, the Papua New Guinea native signed up for a summer camp in Australia because he heard there were nine girls to every boy. The strategy worked, sort of: He met Monika, who would eventually become his wife, though it took him nearly a decade to reach that goal.

"I had to wait my turn," says the father of three.

Such lessons in great odds, patience, and humility have served him well. McLennan, 43, is now part of the team that took over
First Eagle Global
(ticker: SGENX) when famed investor Jean-Marie Eveillard retired in 2009.

McLennan and his team are following in the footsteps of Jean-Marie Eveillard.
Jordan Hollender for Barron's

McLennan manages the fund along with Abhay Deshpande and Kimball Brooker, the team handpicked by Eveillard, who eschewed marquee names in lieu of managers who matched his patient approach, says Morningstar analyst Bridget Hughes. Eveillard remains senior advisor to First Eagle funds, and the team has continued his strict value orientation along with an eye on the big picture. Right now that means gold -- which, at more than 5% of the portfolio, is the fund's largest holding -- as a potential hedge against inflation. The 137 stocks in the fund also are little-changed from when Eveillard ran it, and annual turnover is just 11%, on average. The stocks are primarily companies that have pricing power because they produce a scarce asset. That gives these businesses a resilience during economic downturns.

Like Eveillard, who famously avoided the technology boom of the late 1990s and the financial bubble 10 years later -- the fund's 15-year record beats 99% of its peers -- the new team has been willing to stay out of big chunks of the market, including Brazil, Russia, India, and China, known as the BRICs. That has led to the fund holding a higher-than-usual amount of cash, now 18% of assets.

"It can be lonely, but we are not followers. We plant seeds and watch the plant grow," McLennan says.

The fund's high cash position and large stake in gold have kept it behind in the past year, up 8.7%, while its benchmark, the MSCI World Index, rose 12.2%. Still, the $37 billion fund, which has grown 89% in the past three years, trounced its peers in the world-allocation category, and it has beaten the benchmark, as well. It returned an 8.8% annualized return over the past three years, versus the category's 6.3% rise.

The team travels to companies all over the world, but McLennan says the approach is very document-driven, because the true story about a company is usually found in the footnotes and cash-flow statements. The managers want to see free cash flow rising and sustainable, and conservative liabilities. When valuing the enterprise, they give credit for surplus cash and penalties for debt and other liabilities. The process leads them to companies with strong balance sheets and modest valuations.

The fund is global, which means their process can direct them to companies in the U.S.; right now, the portfolio has 34% of its assets in U.S. stocks. One example is
Microsoft MSFT -0.5866058334691218%Microsoft Corp.U.S.: NasdaqUSD61.01
-0.36-0.5866058334691218%
/Date(1481234400321-0600)/
Volume (Delayed 15m)
:
20767589AFTER HOURSUSD61.1
0.09000000000000340.14751680052450417%
Volume (Delayed 15m)
:
454202
P/E Ratio
29.33173076923077Market Cap
477173287119.834
Dividend Yield
2.5569578757580724% Rev. per Employee
745325More quote details and news »MSFTinYour ValueYour ChangeShort position
(MSFT), which has had weak earnings recently. But McLennan thinks its low debt, net cash, and 35% operating margins give it plenty of cushion to weather a soft PC market. "Just like Coke didn't have to invent Burgundy wine or hot coffee, Microsoft doesn't need to invent every new category of software," McLennan says. "It's enough for Coke to dominate sugared water, and for Microsoft to have a dominant position in operating systems, office applications, and server software."

Much of Microsoft's revenue comes from business, since entire information-technology departments are built around its software. Its revenue is recurring, and free cash flow has been rising. Plus, McLennan says it has more than doubled operating profits in the past decade and bought back approximately 20% of the stock in the past half-dozen years.

First Eagle Global

800-334-2143

Total Returns*

1-Yr

3-Yr

5-Yr

SGENX

8.74%

8.77%

4.34%

MSCI World

12.24

6.29

-1.79

% of

Top 10 Holdings

Ticker

Portfolio**

Gold Bullion

N/A

5.1%

Cisco Systems

CSCO

1.8

Secom

9735.Japan

1.7

Comcast

CMCSK

1.7

Microsoft

MSFT

1.5

Sysco

SYY

1.5

Cintas

CTAS

1.5

Shimano

7309.Japan

1.4

Keyence

6861.Japan

1.3

Fanuc

6954.Japan

1.3

Total:

18.8

*All returns are as of 12/06/12; three- and five-year returns are annualized; ** as of 09/30/12. Sources: Morningstar; company reports

But like Microsoft, says McLennan, Fanuc has more than doubled operating profits over the past decade, and repurchased about 10% of its stock in the past six years. "It has net cash on the balance sheet and supports 35% operating margins through the business cycle, giving it great resilience," he says. Fanuc has an advantage in everything from precision, "intelligence," and reliability to artificial vision.

ANOTHER COMPANY THAT has made the most of scarcity is
Mitsubishi Estate8802.to 1.2929982922664065%Mitsubishi Estate Co. Ltd. ADRU.S.: OTCUSD20.76
0.2651.2929982922664065%
/Date(1481239205000-0600)/
Volume (Delayed 15m)
:
54540
P/E Ratio
37.22431414739107Market Cap
28463797244.8827
Dividend Yield
N/ARev. per Employee
1100970More quote details and news »8802.toinYour ValueYour ChangeShort position
(8802.Japan), which owns much of the Marunouchi, Tokyo's commercial district, wedged between Tokyo station and the Imperial Palace. Since there is no way to expand outward, buildings must expand upward.

"The economics of building up is much more effective than building a new building. They are getting approximately twice the incremental returns on capital relative to the capitalization rate of 4% for such buildings in the private market," he says, adding that the company not only is a unique asset but has the potential to grow intrinsic value.

"The [2011] earthquake created a flight to quality, and their buildings are very well built," he says.

"Some of the businesses have sold off because they are French-listed," he explains. "That translates into a double discount and a generous margin of safety." Plus, the stock boasts a dividend yield of about 4.4%.